Texas Employers Ins. v. Underwriting Members

• Decision Date: 26 August 1993
• Docket Number: Civ. A. No. H-91-357.
• Citation: 836 F. Supp. 398
• Parties: TEXAS EMPLOYERS INSURANCE ASSOCIATION, Plaintiff, v. The UNDERWRITING MEMBERS OF LLOYDS, Bermuda Fire & Marine Insurance Company Limited, U.S. Fire Insurance Company, La Belgique Industrielle, S.A., Lexington Insurance Company, Limited, Walbrook Insurance Company Limited and Coinsuring Companies, Bryanston Insurance Company Limited, St. Katherine Insurance Company Limited, Winterthur Swiss Insurance Company Limited, Compagnie Europeene D'Assurances Industrielles, S.A., Folksam International Insurance Company (U.K.) Limited, CNA Reinsurance of London Limited, Bellefonte Insurance Company (U.K.) Branch, Yasuda Fire & Marine Insurance Company (U.K.) Limited, Stronghold Insurance Company Limited, Pacific and General Insurance Company Limited, Turegum Insurance Company Limited, North Atlantic Insurance Company Limited, Insco Limited, Allianz Versicherungs Aktiengesellschaft, Eisen Und Stahl Ruckversicherungs Aktiengesellschaft, Le Assicurazioni D'Italia Societe Per Aziona, Reaseguradora Nacional De Venezuela Compania Anonima, Chemical Insurance Company, Walbrook Insurance Company Limited, Kingscroft Insurance Company Limited, El Paso Insurance Company Limited, Lime Street Insurance Company Limited, and Mutual Reinsurance Company Limited, Defendants.
• Court: U.S. District Court — Southern District of Texas

836 F. Supp. 398

TEXAS EMPLOYERS INSURANCE ASSOCIATION, Plaintiff, v. The UNDERWRITING MEMBERS OF LLOYDS, Bermuda Fire & Marine Insurance Company Limited, U.S. Fire Insurance Company, La Belgique Industrielle, S.A., Lexington Insurance Company, Limited, Walbrook Insurance Company Limited and Coinsuring Companies, Bryanston Insurance Company Limited, St. Katherine Insurance Company Limited, Winterthur Swiss Insurance Company Limited, Compagnie Europeene D'Assurances Industrielles, S.A., Folksam International Insurance Company (U.K.) Limited, CNA Reinsurance of London Limited, Bellefonte Insurance Company (U.K.) Branch, Yasuda Fire & Marine Insurance Company (U.K.) Limited, Stronghold Insurance Company Limited, Pacific and General Insurance Company Limited, Turegum Insurance Company Limited, North Atlantic Insurance Company Limited, Insco Limited, Allianz Versicherungs Aktiengesellschaft, Eisen Und Stahl Ruckversicherungs Aktiengesellschaft, Le Assicurazioni D'Italia Societe Per Aziona, Reaseguradora Nacional De Venezuela Compania Anonima, Chemical Insurance Company, Walbrook Insurance Company Limited, Kingscroft Insurance Company Limited, El Paso Insurance Company Limited, Lime Street Insurance Company Limited, and Mutual Reinsurance Company Limited, Defendants.

Civ. A. No. H-91-357.

United States District Court, S.D. Texas, Houston Division.

August 26, 1993.

COPYRIGHT MATERIAL OMITTED

Mike Phillips, Phillips & Akers, Houston, TX, for plaintiff.

Thomas A. Brusstar and Thomas W. Engelhardt, McCullough, Campbell & Lane, Chicago, IL, Jack G. Carnegie, Holtzman & Urquhart, David Wayne Prasifka, Lorance & Thompson, Houston, TX, Margaret V.W. Foster, Pepper Hamilton & Scheetz, New York City, Warren Royal Taylor, Floyd, Taylor & Riley, Houston, TX, for defendants.

MEMORANDUM AND ORDER

WERLEIN, District Judge.

This case is one of over 450 civil cases that were transferred last year to this judge in an equalization of the docket. Among the motions pending in this case are a motion to dismiss or in the alternative for summary judgment filed by Defendants, The Underwriting Members of Lloyds, et al¹. (Document No. 32), and motions for partial summary judgment filed by Defendants (Document No. 47), and by Plaintiff, Texas Employers' Insurance Association ("TEIA"), (Document No. 40). After reviewing these motions and the applicable law, the Court concludes that Defendants' motions for summary judgment and partial summary judgment² should be GRANTED.

FACTUAL BACKGROUND

The surviving family of Wilbur Jack Skeen sued Monsanto in 1982, alleging that the chronic myelogenous leukemia which killed Skeen resulted from his exposure to benzene during his employment at Monsanto. TEIA, Monsanto's primary insurer, assumed Monsanto's defense in that case.

Monsanto had both primary and excess liability insurance. TEIA provided the primary layer of insurance under a policy with $1 million per-occurrence loss limits. The TEIA policy expressly provided that TEIA also would defend any applicable proceeding against the insured. The section entitled "Defense, Settlement, Supplementary Payments" set forth TEIA's defense obligations to Monsanto:

As respects the insurance afforded by the other terms of this policy the company TEIA shall:

(a) defend any proceeding against the insured seeking such benefits and any suit against the insured alleging such injury and seeking damages on account thereof, even if such proceeding or suit is groundless, false or fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient;

....

(c) pay all expenses incurred by the company, all costs taxed against the insured in any such proceeding or suit and all interest accruing after entry of judgment until the company has paid or tendered or deposited in court such part of such judgment as does not exceed the limit of the company's liability thereon;

(d) reimburse the insured for all reasonable expenses, other than loss of earnings, incurred at the company's request.

The amounts incurred under this insuring agreement, except settlements of claims or suits, are payable by the company in addition to the amounts payable under coverage A Workmen's Compensation or the applicable limit of liability under coverage B Employers' Liability.

Defendants, The Underwriting Members of Lloyds, et al., provided two layers of excess liability coverage. The first layer of excess or umbrella coverage provided an additional $5 million in coverage beyond Plaintiff's $1,000,000 indemnity limits, and the second excess layer provided an additional $10 million in coverage for Monsanto. The limits of Defendants' liability were set forth as follows:

Underwriters hereon shall be only liable for the ultimate net loss the excess of either:

(a) the limits of the underlying insurance as set out in the attached schedule in respect of each occurrence covered by said underlying insurances,

or

(b) $100,000 ultimate net loss in respect of each occurrence not covered by said underlying insurances,

(hereinafter called the "underlying limits");

and then only up to a further sum as stated in Item 2(a) of the Declarations in all respect of each occurrence — subject to a limit as stated in Item 2(b) of the Declarations $5 million for the first layer of coverage and $15 million for the second layer in the aggregate for each annual period during the currency of this Policy, separately in respect of Products Liability and in respect of Personal injury (fatal or non-fatal) by Occupational Disease sustained by any employees of the Assured.

In the event of reduction or exhaustion of the aggregate limits of liability under said underlying insurance by reason of losses paid thereunder, this Policy subject to all the terms, conditions and definitions hereof shall:

(1) in the event of reduction pay the excess of the reduced underlying limit,

(2) in the event of exhaustion continue in force as underlying insurance.

The inclusion or addition hereunder of more than one Assured shall not operate to increase Underwriters' limits of liability beyond those set forth in the Declarations.

"Ultimate Net Loss" was defined to include:

... the total sum which the Assured, or his Underlying Insurers as scheduled, or both, become obligated to pay by reason of personal injuries, property damage or advertising liability claims, either through adjudication or compromise, and shall also include hospital, medical and funeral charges and all sums paid as salaries, wages, compensation, fees, charges and law costs, premiums on attachment or appeal bonds, interest, expenses for doctors, lawyers, nurses and investigators and other persons, and for litigation, settlement, adjustment and investigation of claims and suits which are paid as a consequence of any occurrence covered hereunder, excluding only the salaries of the Assured's or of any underlying insurers permanent employees.

The second paragraph of this definition, however, added the following caveat:

The Underwriters shall not be liable for expenses aforesaid when such expenses are included in other valid and collectible insurance.

The section entitled "Assistance and Co-operation" further provided that:

The Underwriters shall not be called upon to assume charge of the settlement or defense of any claim made or suit brought or proceeding instituted against the Assured but Underwriters shall have the right and shall be given the opportunity to associate with the Assured or the Assured's underlying insurers or both in the defense and control of any claim, suit or proceeding relative to an occurrence where the claim or suit involves, or appears reasonably likely to involve Underwriters, in which event the Assured and Underwriters shall co-operate in all things in the defense of such claim, suit or proceeding.

The "Loss Payable" provision described when Defendants' liability attached:

Liability under this policy with respect to any occurrence shall not attach unless and until the Assured, or the Assured's underlying insurers, shall have paid the amount of the underlying limits on account of such occurrences....

Plaintiffs in the underlying Skeen lawsuit against Monsanto won a $108 million verdict, which the trial court later vacated with its Order for a New Trial. The second trial started in January, 1989, and before the case reached judgment, it was settled for $7,250,000. Settlement costs were borne by TEIA, which paid its full $1 million indemnity limits, and by Defendants, who paid the remaining $6.25 million. The first layer of excess coverage paid $5,000,000; the second layer paid $1,250,000.

TEIA subsequently demanded reimbursement from the excess carriers for $4,057,245 in attorneys' fees and costs spent by TEIA in Monsanto's defense. The demand was rejected, and TEIA filed this lawsuit against the excess carriers. TEIA alleges that Defendants are responsible for defense costs expended in the underlying Skeen litigation, and that Defendants' refusal to reimburse TEIA is a breach of Defendants' duty of good faith and fair dealing.

Defendants have moved for dismissal or, alternatively, for summary judgment that TEIA take nothing on its contribution and indemnity claims, arguing that there is no right of contribution owed to the primary insurer by the excess insurers, and that TEIA's indemnity claim fails as a matter of law. Defendants have also moved for partial summary judgment on Plaintiff's claim for breach of the duty of good faith and fair dealing.

Plaintiff's motion for partial summary judgment³ argues that: (1) TEIA tendered its $1 million limit of liability on October 2, 1987; (2) this alleged tender of the primary limits terminated its obligations and thereby triggered the excess carriers' defense obligations; (3) case law imposes an equitable duty on excess carriers to pay defense costs incurred before the payment of the underlying limits of liability; and (4) the excess policies are...